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Managing and Using Information Systems:

A Strategic Approach – Sixth Edition

Keri Pearlson, Carol Saunders, and Dennis Galletta

Chapter 5 IT and Business Transformation

Sloan Valve

•What was wrong with their Product Development Process?

•What did Sloan do? What is NPD?

•Did it help?

•Are all enterprise system implementations this successful?

SILO PERSPECTIVE VERSUS

BUSINESS PROCESS PERSPECTIVE

Silo (Functional) Perspective

• Specialized functions (sales, accounting, production, etc.

• Advantages: • Allows optimization of expertise. • Group like functions together for transfer of knowledge.

• Disadvantages: • Sub-optimization (reinvent wheel; gaps in communication;

bureaucracy) • Tend to lose sight of overall organizational objectives.

Executive Offices CEO

President

Operations Marketing Accounting Finance Administration

The Process Perspective

• Examples of processes: • Fulfill customer orders • Manufacturing, planning, execution • Procurement (see below)

• Processes have: • Beginning and an end

• Inputs and outputs • A process to convert inputs into outputs • Metrics to measure effectiveness

• They cross functions

Receive Requirement for Goods/Services

Create and Send Purchase Order

Receive Goods Verify Invoice Pay Vendor

Cross-Functional Nature of Business Processes

How to Manage a Process

• Identify the customers of processes (who receives the output?)

• Identify the customers’ requirements (how do we judge success?)

• Clarify the value each process adds to the organizational goals

• Share this perspective so the organization itself becomes more process focused

Comparison of Silo Perspective and Business Process Perspective

Silo Perspective Business Process

Perspective

Definition Self-contained functional units such as marketing, operations,

finance

Interrelated, sequential set of

activities and tasks that turns

inputs into outputs

Focus Functional Cross-functional

Goal

Accomplishment

Optimizes on functional goals,

which might be suboptimal for

the organization

Optimizes on organizational

goals, or the “big picture”

Benefits Highlighting and developing core competencies; functional

efficiencies

Avoiding work duplication and

cross-functional communication

gaps; organizational

effectiveness

Problems Redundancy of information throughout the organization;

cross-functional inefficiencies;

communication problems

Difficult to find knowledgeable

generalists; sophisticated

software is needed

What do you do when things change?

•Dynamic and agile processes

•Examples: • Agile: Autos are built with wires and space for

options • Dynamic: Call centers route incoming or even

outgoing calls to available locations and agents • Software defined architectures (see chapter 6)

•IT is required to pull this off well

Techniques to Transform a Static Process

•Radical process redesign • Also known as business process reengineering

•Incremental, continuous process improvement • Including total quality management (TQM) and

Six Sigma

Incremental Change • Total Quality Management

• Often results in favorable reactions from personnel • Improvements are owned and controlled • Less threatening change

• Six-Sigma is one popular approach to TQM • Developed at Motorola • Institutionalized at GE for “near-perfect products”

• Generally regarded as 3.4 defects per million opportunities for defect (6 std dev from mean)

Time

Improve- ment

Radical Change

• Business Process Reengineering (BPR)

• Sets aggressive improvement goals.

• Goal is to make a rapid, breakthrough impact on key metrics in a short amount of time.

• Greater resistance by personnel.

• Use only when radical change is needed.

Time

Improve- ment

Comparing the Two

Improve- ment

Key Aspects of Radical Change Approaches

• Need for quick, major change

• Thinking from a cross-functional process perspective

• Challenge to old assumptions

• Networked (cross-functional organization)

• Empowerment of individuals in the process

• Measurement of success via metrics tied to business goals and effectiveness of new processes

Workflow and Mapping Processes

• Workflow diagrams show a picture of the sequence and detail of each process step

• Objective is to understand and communicate the dimensions of the process

• Over 200 products are available to do this

• High-level overview chart plus detailed flow diagram of the process

BPM

• Information systems tools used to enable information flow within and between processes.

• Comprehensive, enterprise software packages.

• Most frequently discussed: • ERP (Enterprise Resource Planning), • CRM (Customer Relationship Management), • SCM (Supply Chain Management)

• Designed to manage the potentially hundreds of systems throughout a large organization.

• SAP, Oracle, Peoplesoft are the most widely used ERP software packages in large organizations.

BPM Architecture

Standardization vs Integration

Business Process Standardization

Low High

B u

si n

e ss

P ro

ce ss

te g

ra ti

o n

High Single face to customers and suppliers but standards not enforced internally

High needs for reliability, predictability, and sharing; single view of process

Low Decentralized design; business units decide how to meet customer needs

Tasks are done the same way across units, but there is little need for business units to interact

Source: J. Ross “Forget Strategy: Focus IT on your Operating Model,” MIT Center for Information Systems Research Briefing (December 2005)

Enterprise Systems (Enterprise Resource Planning or ERP)

• Seamlessly integrate information flows throughout the company.

• Reflect industry “best” practices.

• Need to be integrated with existing hardware, OSs, databases, and telecommunications.

• Some assembly (customization) is required

• The systems evolve to fit the needs of the diverse marketplace.

ERP Advantages and Disadvantages

Advantages Disadvantages • Represent “best practices”

• Modules throughout the organization communicate with each other

• Enable centralized decision-making

• Eliminate redundant data entry

• Enable standardized procedures in different locations

• Enormous amount of work

• Require redesign of business practices for maximum benefit

• Require customization if special features are needed

• Very high cost

• Sold as a suite, not individual modules

• Requires extensive training

• High risk of failure

ERP II

• Makes information available to external stakeholders too

• Enables e-business applications

• Integrates into the cloud

• Includes ERP plus other functions (see Figure 5.8)

ERP and ERP II Functions

Customer Relationship Management

• Customer Relationship Management (CRM) is a natural extension of applying the value chain model to customers.

• CRM includes many management activities performed to

• obtain, • enhance relationships with, and • retain customers.

• CRM can lead to better customer service, which leads to competitive advantage for the business.

CRM

•Common systems are: • Oracle • SAP • Salesforce.com (web-based cloud system)

•Oracle and SAP integrate into their ERP systems

Supply Chain Management (SCM)

• An enterprise system that manages the integrated supply chain

• Translation: processes are linked across companies

• The single network optimizes costs and opportunities for all companies in the supply chain

• Every part of the supply chain has the latest information about sales expected and inventories from source materials at all stages

• Bullwhip effect occurs when the supplier at each stage adds a small “buffer” for it’s suppliers in case demand is higher than expected

Difficulties in Integrated Supply Chains

• Information integration requires agreement of what information to share, how to share it, and the authority to view it.

• Trust must be established

• Planning must be synchronized carefully

• Workflow must be coordinated between partners to determine what to do with the information they obtain

Advantages and Disadvantages of Enterprise Systems

The Adoption Decision

• The enterprise system sometimes should drive business process redesign when:

• Just starting out.

• Organizational processes are not relied upon for strategic advantage.

• Current systems are in crisis.

• It is inappropriate for the enterprise system to drive business process redesign when:

• Changing an organization’s processes that are relied upon for strategic advantage.

• The package does not fit the organization. • There is a lack of top management support.

Managing and Using Information Systems:

A Strategic Approach – Sixth Edition

Keri Pearlson, Carol Saunders, and Dennis Galletta